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Monday, December 28, 2015

Tuesday Watch

China Bond Defaults Seen Rising as Borrowing Costs Climb in 2016. Chinese corporate defaults will likely spread next year as borrowing
costs climb, financial companies surveyed by Bloomberg said. All
22 bond traders, analysts and others surveyed forecast China’s corporate
default rate will rise in 2016, while over 70 percent expect the extra
yield on corporate notes to increase. The premium on five-year AA rated
company securities over government notes has risen to 175.9 basis points
after plunging to an eight-year low of 169.2 basis points last month.
More firms in China are struggling to repay debt amid the worst economic
slowdown in a quarter century. The number of listed companies with more
debt than equity has jumped to 913 from 705 in 2007, according to
data compiled by Bloomberg. Three Chinese manufacturers said last week
that they lack funds to repay bonds due this month. Earlier in December,
pig iron producer Sichuan
Shengda Group Ltd. became at least the seventh Chinese firm to renege on
local debt obligations this year.

The World's Richest People Got Poorer This Year. The richest people on Earth became a bit poorer this year. The
world’s 400 wealthiest individuals shed $19 billion in 2015, according
to the Bloomberg Billionaires Index. Falling commodities prices and
signs of a slower-growing China spooked investors around the world
leading to the first annual decline for the daily wealth index since its
2012 debut.

Japan Steelmakers Fall as Inventories Rise Despite Output Cuts. Steelmakers led declines in Japan after an increase in stockpiles
signaled a slower pace of a recovery as global peers struggle with
overcapacity. JFE Holdings Inc., Japan’s second-biggest steel
supplier, fell as much as 4 percent and traded 3.1 percent lower at
1,900 yen as of 11:24 a.m. in Tokyo. Tokyo Steel Manufacturing Co.
dropped as much as 6.1 percent before paring its decline to 3.5 percent.
The Iron and Steel Index fell the most among segments listed on Japan’s
Topix.

Emerging-Market Stocks Extend Losses on Persistent Oil Weakness. Emerging-market equities fell for a second day, extending the biggest
annual decline in four years, as persistent weakness in commodities
weighs on the global growth outlook. The MSCI Emerging-Markets
Index dropped 0.2 percent, led by losses in technology and raw-material
stocks, as deteriorating risk appetite boosted demand for healthcare and
utilities.

Iran Adding to Global Oil Glut Dims Hopes for Recovery Next Year. Investors are losing faith in an oil-price recovery next year as Iran
prepares to add more crude to a global glut. That’s good news for
American drivers who have enjoyed the lowest gasoline prices in six
years. Hedge funds reduced bets on rising prices to a three-month
low and kept bearish wagers near a record high in the week ended Dec.
22, data from the U.S. Commodity Futures Trading Commission show.

Wall Street Journal:

Fed Poised to Look a Bit More Divided. New voters bring more-hawkish views to policy-setting committee. The Federal Reserve in 2016 could look more divided as policy makers
assess the health of the U.S. economy and debate whether, when and how
much further to raise short-term interest rates. The
regular rotation of voting seats on the rate-setting Federal Open Market
Committee will mean a more prominent role in the coming year for
several officials who argued for the central bank to start raising rates
well ahead of its Dec. 16 decision to do so. They replace officials who
generally voted with the majority in 2015 and..

Key Funding Source for Miners Is Depleted. Companies that provide the majority of ‘streaming’ financing are running low on capital. For struggling mining companies, an important source of financing is growing scarce. Contending
with falling profits and hefty debt payments, mining firms such as
Glencore PLC and Vale SA this year increasingly turned for cash to
specialist lenders who pay large lump sums in exchange for metal
deliveries.

A Bold Few Traders Earn Billions Flouting Rivals. The investors that did the best in 2015 are those that defied conventional wisdom. Most Wall Street traders early this year predicted oil prices would
rebound through 2015 and buoy the drillers and equipment providers with
close ties to crude. But John Armitage believed more trouble was ahead.

Fox News:

New Iran sanctions fight looms in 2016. (video) Despite President Obama’s nuclear deal with Iran that provides a
gradual easing of decades of crippling economic sanctions, senators are
fighting to renew a vital law that would preserve the sanctions option should Iran renege on its end of the bargain. The Hill reports that senators plan to move soon on a proposal to extend what’s known as
the Iran Sanctions Act, which is set to expire next year. Sen. Ben
Cardin, D-Md., top Democrat on the Foreign Relations Committee, told the
newspaper his colleagues have floated the possibility of tackling the
issue in January or February.

Advance Goods Trade Deficit for November is estimated at -$60.87B versus -$58.41B in October.

9:00 am EST

The S&P/CS 20 City MoM SA for October is estimated to rise +.6% versus a +.61% in September.

10:00 am EST

Consumer Confidence for December is estimated to rise to 93.8 versus 90.4 in November.

Upcoming Splits

None of note

Other Potential Market Movers

The weekly US retail sales reports and the $26B 2Y T-Note auction could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

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